May 8, 2020

Rip Off the Band-Aid | Chamath Palihapitiya on Business Casual Podcast

Check out the Business Casual Episode Page & Show Notes

In a healthy economy, if a company loses money and sells a fundamentally flawed product, it goes bankrupt and liquidates its assets
- Instead, now we have zombie companies staying on life support
Steps to a healthier economy:
- 1. Much stricter limits on what a balance sheet needs to look like to be rated as high-quality debt
- 2. Disincentivize people from not investing in the future
- 3. Create positive incentives to better capitalize on R&D
- 4. Additionally, limit how much leverage hedge funds have
If it was up to Chamath, he would have an entire wave of spending on next-generation things (E.g. best healthcare, education, next-gen military)
The damage done by COVID-19 is ripping apart working and middle-class families. It will only be apparent in a few months, and they need more support than corporations
Should billionaires exist? “Of course they should, it’s an embodiment of the fact that people can be successful” – Chamath Palihapitiya
Bitcoin is an insurance policy
- Buy a very small amount (1% of your net worth) and don’t ever look at it, it may save you someday

Chamath Palihapitiya (@chamath), is the CEO of Social Capital
- Check out the Podcast Notes from part 1 of this interview and these Podcast Notes from his appearance on The Pomp Podcast
Host: Kinsey Grant (@KinseyGrant)

There is enough debt, banks, and debt buyers in the world that allow these companies to stay on life support
- In a healthy economy, if a company loses money and has a fundamentally flawed product, it goes bankrupt and liquidates its assets
Instead, now we have zombie companies focus on profiteering in the short term
- A glaring example: IBM is a $100B company that spent $140B on stock buybacks
- IBM’s last CEO over-saw 24 quarters of declining revenue and rising compensation

1. Much stricter limits on what a balance sheet needs to look like to be rated as high-quality debt
2. Disincentivize people from not investing in the future
- Prevent buybacks and dividends when companies have enormous profits
3. Create positive incentives to better capitalize on R&D
- E.g. Hiring an R&D engineer in Canada can come with tax credit almost 3 times the salary
4. Additionally, limit how much leverage hedge funds have
- Big leverage means the bigger you are, the less likely you are to fail because somebody will bail you out
- As the old adage goes “if I owe the bank a $1,000 that’s my problem, but if I owe the bank a billion dollars, that’s their problem”

If it was up to Chamath, he would have an entire wave of spending on next-generation things (E.g. best healthcare, education, next-gen military)
- US government proved it’s willing to spend trillions. It will be better directed at innovation and productivity as that gets money flowing downstream
Medium-term: be a bridge, individuals needs support more than corporations
- The damage done by COVID-19 is ripping apart working and middle-class families. It will only be apparent in a few months, and they need more support than corporations
The wealthy are doing fine in this economic crisis.
- “I would rather the younger version me gets taken care off before the older version of me” – Chamath Palihapitiya

“Of course they should, it’s an embodiment of the fact that people can be successful” – Chamath Palihapitiya
For most people, money is a byproduct of something they did, not as a result of obsessing about getting rich
- You want that example for the coming generations
- Imagine an NBA where if you are good as LeBron James, you will be allowed to play only 5 minutes per game

Imagine a cloud that has a magic drop of rain that makes you successful
- Your job: To work hard to be as large as possible to increase your chances of the raindrop hitting you
- The real problem: Not being able to grow regardless of how hard you work
Fix the real problem instead of “shooting the cloud”

Wakes up at 7, checks email and public markets
Breakfast in bed
Aims at getting 10,000 steps per day, and does yoga twice per week via Zoom
Chamath is watching Billions
Sleep by 11-12
Allocate part of the day to calling friends
Take away: During a lockdown, following a strict routine will minimize your anxiety

The economy is heading towards a depression, 2 events may occur:
- China invades Taiwan to get access to key technologies
- The Middle East fragments up into many smaller countries

He started buying Bitcoin back when it was $85 per bitcoin, he sees it as an insurance policy
If we don’t fix the combination of capitalism and democracy, we will go through a financial cataclysm, and people will lose faith in the US system
- Buy a very small amount (1% of your net worth) and don’t ever look at it; it may save you someday